of Small Farms Growing Hops & Specialty Grains Profitably in Howard County Hobie Cohen, Nora Pittmann & Andrew Roehl 1
Agenda 2
Consulting Team Nora Pittmann MBA 16 Project Manager University of Maryland Andrew Roehl MBA 17 Litigation Paralegal, Jones Day Hobie Cohen MBA 16 Engineer, Lockheed Martin 3
Client Relationship Smith MBAs Consultants PALS Partner and Advisor HCEDA Client POC: James Zoller Owns 75 acre family farm Began growing 1 acre of hops 2 years ago 4
Problem: Hops/Grains Small farms (5-20 acres) are not making a profit Existing and new farmers in the county looking for new, more profitable opportunities The county has selected hops and specialty grains as two products for further research Determine if hops and grains are viable profitable products for smaller farms in Howard County 5
Research Methodology Primary 17 breweries, distilleries, home brew shops, farm breweries 6 professors and extension agents 5 Howard County Farms and farmers Secondary USA Census Data; Cornell University and University of Vermont hops research 6
Feasible in Future but Not Today Howard County small farmers unlikely to be profitable in current markets Significant barriers to entry for both markets Buying local not enough High quality and consistent yields valued by breweries and distilleries 7
The for Beer and Spirits MD and D.C. Breweries: 70 Breweries (60 MD) (10 D.C.) 10 farm breweries (grow/brew in same location) 7 distilleries 5 homebrewing shops MD and D.C. breweries source ingredients from Europe, Canada, and rest of U.S.A. 25 Number of MD Breweries 31 34 2011 2012 2013 2014 2015 40 60 8
What does HC need to grow Hops? Ideal Climate Ideal Soil Rhizomes Designed for NE Hops Knowledge Equipment Processing 9
Howard County is Not Ready Ideal Climate Ideal Soil Rhizomes Designed for NE Hops Knowledge Equipment Processing Yes/No Yes/No No No No No 10
One Run of Beer Requires 3 Acres Hops For average annual run of one type Assumptions 1 ounce - ½ lb dry hops per 5 gal; assume 1.5lb dry hops per barrel 1500lb yield dry hops per acre in NW; ⅙ yield in MD 500 barrels average annual run of a beer for microbrewery 11
How Much Will 3 Acres Cost? Farm Set-Up $25,019 Processing $64,850 Poles Cable Harvester Dryer Trellis String Irrigation Moisture Probe Hops Rhizomes Trellis Rigging Compactor Vacuum Sealer Orchard Ladder Pelletizer 12
Will 3 Acres Make Money? ~$7,500 revenue by 3 rd Year ~$23,000 potential annual expenses (including labor) Assumptions 250 lbs of hops per acre production $10 per lb to sell pelletized Cascade hops Harvest: 1 st Year: 0%, 2 nd Year: 50%, 3 rd Year 100% 13
What Does Howard County Need to Grow Grains? Ideal Climate Ideal Soil Grains Designed for NE Grains Knowledge Equipment Processing 14
Howard County is Not Ready Ideal Climate Ideal Soil Grains Designed for NE Grains Knowledge Equipment Processing Yes/No Yes/No Yes/No Yes Yes/No No 15
One Run of Liquor Requires 6.5 Acres of Grain For average annual run Need less for beer Assumptions 67 bu/acre wheat, barley, or rye 55 lb/bu wheat, barley, or rye 1 ton/month required for average annual run of liquor at small distillery 16
How Much Will 6.5 Acres Cost? Annual Cost $2,450 Seed Fertilizer Chemicals Custom Operations Fuel, lube, and electricity Repairs Other Variable Expenses Interest on Operating Capital Hired Labor Opportunity Cost of Unpaid Labor Capital Recovery of Machinery and Equipment Opportunity cost of land (rental rate) Taxes and insurance General farm overhead Malting Processing Estimates Unavailable 17
Will 6.5 Acres Make Money? ~$2,450 cost ~$2,400 straw revenue ~$14,400 malted grain revenue Ability to malt unknown; malted grain revenue questionable Assumptions $375 production cost per acre wheat, barley, or rye $200 per ton to sell straw $0.60 per lb to sell malted grain 18
to Improve Additional research into growing and production; development of breeding program Hops equipment co-op to reduce start-up costs Supply chain to source hops-growing materials not currently sold in Maryland Building/funding processing facilities in Howard County 19
Potential Partners for Existing Hops Farmers Establishment Location Opportunity Barley and Hops Grill and Microbrewery Frederick Chinook, Columbus, Cascade hops Frisco Taphouse and Brewery Columbia Setting up system in summer 2016 to enable whole leaf brewing Maryland Homebrew Columbia Smoked malts Whole leaf hops: Warrior, Target, Nugget, Tettnang Nepenthe Homebrew Baltimore Seeking small hops purchases: 30 ounces every 3 weeks MISCellaneous Distillery Mount Airy Specialty grains (buckwheat, other) Twin Valley Distillers Rockville Unmalted grain in 50lb bags; purple corn Lost Ark Distilling Co Laurel Malted rye; willing to experiment with small batches of local grains (blue corn, teff) New Columbia Distillers DC Malted barley 20
Questions? Thank You! 21
Appendix 22
Farming Hops Bittering hops commodity; aroma hops differentiated 96.7% of U.S. hops is farmed in Pacific Northwest 2015 hops production: MD (15 acres); U.S.A. (43,633 acres) Grown/Processed using specialized equipment ($40K - $100K) Mechanized process required to be profitable Takes up to 4 years to get full yield Requires specific environmental conditions, such as latitude of 35-55 degrees Howard County is at 39 degrees latitude 23
Farming Specialty Grains Barley/Rye/Wheat Used to make beer and whiskey Grow fairly well locally Local yield (bu/acre) is higher than in North Dakota (leading grain producer) Use same equipment as for other typical grains ($5K - $100K) Barley Two-row and six-row used for alcohol (two-row better yield) Six-row grows better on East Coast 24
Hops in Demand Hops varietals most common in craft brews Generally: Bittering: nugget, columbus, tomahawk, zeus, warrior Aroma: cascade, crystal, willamette Dual: citra, centennial, chinook, simcoe Locally: Bittering: nugget, columbus Aroma: cascade, amarillo, Czech saaz Dual: citra, centennial, chinook 25
Hops Farming in Maryland Strengths May be able to fetch high price in homebrew shops (pelletized) Local interest in quality product (interest does not necessarily equate to sales) Opportunities Howard County Agricultural Grants Brewpubs, homebrew shops (smaller producers that do not can or keg) Popular/Grows well locally: Chinook, Cascade, Nugget, Centennial Partner with UMD Extension School or MD Brewers Association Agricultural Resources Committee Sell hops on Lupulin Exchange Weaknesses Local climate is not ideal for hops No processing facilities in Maryland Costly specialized equipment; labor intensive harvest Switching - 4 years to get full yield Cannot easily combine hops from different sources Lack specialty knowledge and proprietary hops possessed by multi-generational farmers in NW Must be competitively priced Threats Drought/insects/disease can wipe out whole crop Existing contracts in place for breweries Larger hops farms in NW producing cheaper hops with higher reliability of supply 26
Specialty Grain Farming in Maryland Strengths Winter wheat/rye can be grown as cover crops Likely possible to mix local grains with others Local demand for quality product (interest does not necessarily equate to sales) Weaknesses No processing facilities in Maryland Not so simple to add alcohol quality grains into crop rotation Switching - costly equipment to grow only a few acres of grain Consistency is questionable Must be competitively priced Opportunities Distilleries may take unmalted grain Winter wheat desired for pastry making in PA Threats Drought/insects/disease can wipe out whole crop Existing contracts in place for breweries/distilleries Larger farms in NW producing cheaper and more consistent quality product 27
(Un)Conventional Uses Hops Beer Soap (smells good) Pillow fill (relaxation, sleep aid) Herbal medicine (relaxation, sleep aid, antibiotic) Tea Edible shoots (tastes like spinach/asparagus) Livestock feed (reduces bacteria) Specialty grains Alcohol: beer, bourbon (51% corn), rye, wheat whiskey, vodka Baked goods Cereals Soups Livestock feed 28